Paints firms to come out with flying colours

Decorative segment may post 11-12 % sales growth this year.

It promises to be another colourful year for the Rs 8000 crore paints industry. And despite a long monsoon, decorative paints could grow at a faster pace than it has in the past two years, driven by the housing and retail boom.

Sales of decoratives this year are tipped to post a higher 11-12 per cent growth yoy. That's higher than the 8-10 per cent growth seen in the last couple of years.

On the other hand, sluggish growth in the automobile sector could be a drag on the growth of industrial paints, which grew at a brisk 14-15 per cent in the last two years.

This year could see a more sober number of between 12-13 per cent. Nonetheless, it will be the third consecutive year that industrials outpace decoratives.

Slower auto sales however, are giving paint manufacturers some cause for concern. Domestic passenger car sales between April-July FY05 were up just 4.69 per cent yoy, while sales of commercial vehicles have been up just 1.9 per cent. Two-wheelers, however, have grown 12.17 per cent.

Says H.M.Bharuka, managing director, Goodlass Nerolac, " We're getting mixed signals from the auto sector. Growth seems to be slowing down and so the demand for paints too could flag somewhat." Since the auto segment accounts for 45-46 per cent of the industrial paints segment, any dip in demand would pull down the overall growth rate for the category. Goodlass is the market leader for industrial paints and supplies to almost all auto companies in the country.

Apart from auto sales, Bharuka adds that growth in certain categories of white goods, such as refrigerators and washing machines too seems to be slowing. However, demand from the non-auto industrial segment continues to remain strong, emanating primarily from the infrastructure and engineering sectors.

Says J.N. Shahani, vice-president, Industrial Paints, Asian Paints, " We are seeing increasing demand from roads, power plants, refineries, petrochemical units and from engineering goods." He adds that there is also a growing demand for fire-retardent and fluoroscent paints is also growing. The share of industrials has moved up from around 25 per cent four years ago to around 28 per cent last year.

Shahani believes that with continued spend on infrastructure, the industrial paints segment should grow at between 14-15 per cent in the long term, accounting for approximately 35 per cent of the overall market by about FY09.

That would still be way short of the international benchmark of 65 per cent. In developed countries, it is industrials rather than decoratives that command the bigger share.

In India though, it's still decoratives that sell more. And FY06 could be even better with a growth of around 11-12 per cent. Despite the monsoon having lingered on till end September, companies believe that festive season sales will be brisk.

Asian Paints, the market leader in decoratives, saw sales grow by 25 per cent yoy in Q1FY06 and the management believes that rising rural incomes are driving sales. A shade different

Sluggish growth in the automobile sector could be a drag on growth of industrial paints, which grew at a brisk 14-15 per cent in the last two years.

However, it will be the third consecutive year that industrials outpace decoratives

Demand from non-auto industrial segment continues to remain strong